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DIRECTIVE No.20/1998/CT-TTg OF APRIL 21, 1998 ON STEPPING UP THE REORGANIZATION AND RENEWAL OF STATE ENTERPRISES

Over recent years, the Government has adopted various policies and undertakings to reorganize and rearrange the State enterprises, promote their business autonomy as well as capital preservation and development responsibility and raise the efficiency of their operations, thus obtaining important results.

However, there are now signs of non-increase or decrease in the norms for economic growth, profits, budget remittance and competitiveness of State enterprises in some branches and some localities as compared to 1995. Enterprises that have suffered from prolonged losses and been unable to stand on their own remain unhandled; enterprises operating inefficiently still account for a large percentage; the equitization process takes place too slowly. The State enterprise structure is slow to be renewed. The competitiveness of State enterprises on regional and international markets is low.

In order to step up the industrialization, modernization and economic integration and in furtherance of the resolution of the fourth plenum of the Party Central Committee (the 8th Congress) on continuing to renew State enterprises and raise the efficiency of their operations, the Prime Minister requests the ministries, branches, localities and State corporations established under Decision No.91-TTg of March 7, 1994 (hereafter referred to as Corporation 91 for short) to do the following:

I. EXPEDITIOUSLY CLASSIFYING AND RESTRUCTURING THE STATE ENTERPRISES

1. The ministers, heads of the ministerial-level agencies and agencies attached to the Government, presidents of the People's Committees of the provinces and cities directly under the Central Government, managing boards of Corporations 91 shall concretely evaluate the operations of their attached State enterprises from the time the plan on restructuring under Directive No.500-TTg of the Prime Minster of August 25, 1995 was implemented and thereby classify and reorganize the State enterprises on the following principles:

a) Group one: includes important enterprises whose operations need to be maintained according to the Law on State Enterprises in order to promote their core and leading role in the process of industrialization and modernization. They are enterprises where the State needs to hold 100% of their capital and a number of carefully selective production and business enterprises in sectors, that need to be equitized but have no conditions to carry out the equitization from now till the year 2000 such as State corporations (except for the equitization of a number of member enterprises of corporations) and a number of other important enterprises of great significance for the balances of the economy (see appendix issued together with this Directive). Direction should be concentrated on perfecting the organizations, personnel and finance of the enterprises in this group; giving them priority in being provided with an additional budget allocation to meet at least 30% of the prescribed working capital requirement; creating conditions for them to take initiative in mobilizing capital and preserving capital so as to constantly renew technologies, expand production scale and raise the business efficiency.

For public-utility enterprises: Pursuant to Decree No.56-CP of October 2, 1996 of the Government, to determine the specific list thereof and report it to the Prime Minister. Those public-utility enterprises which have no conditions to operate according to the principle of capital preservation shall be promptly restructured or have their management opened to bidding. Enterprises involved in urban sanitation activities and some other State-supported and-supervised service activities of public-utility character shall be encouraged to turn themselves into joint stock companies, limited liability companies, with capital partly owned by the State or fully owned by capital contributers.

b) Group two: includes enterprises whose ownership structure need to be transformed. They are enterprises where the State needs not to hold 100% of their capital. It is necessary to clearly define in this group the enterprises where the State needs to hold the prevailing or special shares and the State ownership representatives shall occupy the executive role (see Appendix issued together with this Directive).

In the 1998-1999 State enterprise equitization plan, each ministry, locality and corporation shall have to select at least 20% of its independent- or dependent-accounting enterprises where the State needs not to hold 100% of their capital for equitization and send such report to the Central Equitization Steering Committee before May 31, 1998 for sum-up and submission to the Prime Minister. Attention should be paid to pursuading the laborers in the enterprises to clearly understand the significance and benefit of this policy. In case of any disagreement with the equitization, the agencies that have proposed the establishment of the enterprises shall decide or submit to the Prime Minister for consideration according to the current regulations on responsibility division.

On the basis of the overall equitization plan approved by the Prime Minister, the Central Equitization Steering Committee shall guide and urge the ministries and localities to expeditiously draw up implementation plans under the current regulations.

For State enterprises which are too small (with the State capital being under 1 billion VND), such forms as public bidding, leasing, merger with other enterprises if such merger can yield higher socio-economic efficiency, business contract, preferential sale to cadres and employees of the enterprises or sale to legal entities and/or individuals of other economic sectors may be considered and applied.

The consideration and selection of enterprises with the State capital being under 1 billion VND for the application of the above-mentioned measures shall be done at the request of the agencies that have founded the enterprises. This Ministry of Planning and Investment shall assume the prime responsibility and coordinate with concerned agencies in submitting to the Government the specific regulation on principles and policies for implementing this. In 1998, the ministries and localities shall select at least 5% of the existing too small enterprises for pilot implementation so as to draw experiences therefrom for widespread application in subsequent years.

c) Group three: includes enterprises which have operated at a loss for a long time. They are enterprises that have suffered from losses for two or more consecutive years, been unable to pay due debts, have not fully paid taxes to the State, not fully deducted for social insurance and other funds as prescribed. Enterprises in this group shall be handled as follows:

- If the enterprises have outlets for their products but have fallen in such plight due to the lack of capital or low managerial capability, the agencies that have decided the establishment of the enterprises shall consider measures to support them and resolutely replace managerial cadres, then later apply measures to transform the ownership structures.

- If the enterprises are beyond the capability to overcome difficulties, they shall be auctioned or dissolved. When carrying out procedures for the dissolution of enterprises, the agencies that have decided the establishment thereof shall have to recover and pay arising debts in order to avoid causing difficulties to relevant enterprises.

In cases where the enterprises fall into the state of bankruptcy, the Law on Bankruptcy of Enterprises shall apply. The Ministry of Planning and Investment shall assume the prime responsibility and coordinate with the Economic Tribunal of the Supreme People's Court in reporting to the Prime Minister on the application of the Law on Bankruptcy of Enterprises and proposing measures to clear all hurdles so that the application of the Law on Bankruptcy of Enterprises really help settle the situation of the enterprises' debts in accordance with laws, then transfer the assets with remaining use value to other legal entities for more efficient business.

2. The State enterprise classification and reorganization plan of each ministry, branch, Corporation 91 and locality must be completed before December 30, 1998 (particularly for Hanoi and Ho Chi Minh City, before June 30, 1998) and shall be approved according to the following stipulations:

The Prime Minister shall consider and approve plans of Hanoi and Ho Chi Minh City, the ministries, the ministerial-level agencies, the agencies attached to the Government, Corporations 91.

The Prime Minister shall authorize the head of the Central Steering Committee for Renewal of Enterprises to assume the prime responsibility and coordinate with concerned ministries in considering and approving the plans of localities.

The plans of ministries and localities that have numerous State enterprises shall be considered first. In the course of elaborating reorganization plans, all business activities of enterprises shall be carried out normally. Well prepared issues shall be applied immediately according to current regulations on responsibility division, without waiting for the completion of master plans to organize the implementation.

3. Setting up a number of central working teams which shall coordinate with working teams of the localities with numerous State enterprises in guiding and urging the implementation of the above-mentioned solutions.

II. CONSOLIDATING AND PERFECTING THE ORGANIZATION OF STATE CORPORATIONS (INCLUDING CORPORATIONS OPERATING ACCORDING TO MODELS DEFINED IN DECISION NO.91-TTg AND DECISION NO.90-TTg OF MARCH 7, 1994 OF THE PRIME MINISTER)

1. The Central Steering Committee for Renewal of Enterprises shall coordinate with the Government Commission for Organization and Personnel, the ministries and the People's Committees of the provinces and cities directly under the Central Government in firmly grasping the specific situation of each State corporation for overcoming in time the managerial weaknesses and adequately posting managerial cadres so as to enhance the managerial capability of the corporation; drawing experiences from the experimental organization of financial companies of State corporations for application on a broader scale; reviewing the implementation of the Regulation on the operation of the managing boards, the relationship between the managing boards and the general directors for proper guidance and supplement. In 1998, two or three corporations shall be selected for experimenting the regime of assigning the managing boards to recruit and hire the general directors (directors). The Ministry of Planning and Investment shall quickly prepare the regulation and model contract on hiring general directors (directors) and submit them to the Prime Minister.

2. Further enhancing the corporations' role in drawing up development strategies and plans, organizing the coordination in inspection and supervision on the basis of promoting the initiativeness and creativeness of member enterprises. A corporation must be a uniform entity, being able to bring into play the composite strength of the entire corporation and overcome the state of incoherent operations of member enterprises. For member enterprises that operate efficiently and stably, more autonomy shall be given thereto. For weak member enterprises that operate in an unstable manner, there must be plans to reorganize them, and when they get better, their scope of responsibility shall be broadened.

3. The admission of new members to and the dismissal of existing members from corporations must be considered case by case on the basis of socio-economic efficiency. For corporations with many member enterprises which have operated at a loss and seen no positive changes even after they are reorganized by the corporations and given support by the State, the reorganization or dissolution of such corporations should be considered.

4. Strictly abiding by the Government's regulation on assignment of responsibility to corporations. Putting an end to the direct interference by branch-managing ministries and functional ministries in the business activities of corporations and their member enterprises while enhancing the State management function of the ministries, the People's Committees of the provinces and cities directly under the Central Government over the corporations in accordance with the provisions of law like the State management over other economic sectors.

5. The ministries, the ministerial-level agencies, the agencies attached to the Government, the People's Committees of the provinces and cities directly under the Central Government and Corporations 91 shall make a preliminary review of the application of the corporation model and send it to the Central Steering Committee for Renewal to Enterprises for sum-up and submission to the Government by the end of the second quarter of 1998.

III. APPLYING MEASURES TO MAKE HEALTHY THE FINANCIAL SITUATION OF STATE ENTERPRISES AND CREATE CONDITIONS FOR THEM TO MAKE CORRECT COST-PROFIT ACCOUNTING AND PROPERLY PERFORM THE RESPONSIBILITY OF PRESERVING AND DEVELOPING THE CAPITALS ALLOCATED TO THEM BY THE STATE

The Ministry of Finance shall assume the prime responsibility and coordinate with the General Department of Staticstics and the Government's Pricing Committee in guiding the ministries, branches, localities and Corporations 91 to accurately determine the value of assets under the use right of the State enterprises according to the market price, analyse the causes of bad debts and unsaleability of materials so as to work out measures for settlement. The bad debts and unsaleable materials incurred due to the implementation of the undertakings of higher-levels and have not yet been handled right away shall be put in a separate item of the property balance sheet for handling case by case. The bad debts and unsaleable materials that fall within the responsibility of the enterprises, the enterprises shall have to take initiative in handling them according to the current regulations of the State.

The determination of the asset value shall be done mainly by the enterprises under the professional guidance of the Ministry of Finance. Plans should be quickly implemented but attention should be paid to the focal targets. Work shall be done first at enterprises with many unsettled problems. Enterprises that have accurately calculated the enterprise value, the work shall rely mainly on the conclusions of the independent auditing of the annual asset inventory.

IV. DRAWING UP PLANS FOR TECHNOLOGICAL RENEWAL AND MANAGERIAL PERFECTION IN ORDER TO RAISE THE COMPETITIVENESS IN THE COURSE OF INTERNATIONAL INTEGRATION

Alongside the reorganization of State enterprises, the ministries, branches, localities and Corporations 91 shall direct their attached enterprises to elaborate five-year plans for their respective international integration, based on the country's timetable for joining in international organizations (particularly the ASEAN Free Trade Area (AFTA) of the Association of Southeast Asian Nations, the Asia-Pacific Economic Cooperation (APEC) Forum and the World Trade Organization (WTO) ) under the guidance of the Ministry of Trade and the Ministry of Finance, on international practices as well as on the Government's timetable for gradual tariff cut which have been already announced or shall be announced.

All enterprises must be fully aware of such international integration requirement so as to take initiative in elaborating plans therefor and execute them in an expeditious, firm and effective manner. While studying and issuing policies and implementing them, the State management agencies shall have to create favourable conditions for enterprises to conduct their production and business activities so as to be able to stand firm and raise their competitiveness in the spirit of Directive No.16/1998/CT-TTg of March 31, 1998 of the Prime Minister on settling petitions made by enterprises in their three meetings with the Prime Minister in early 1998.

The Ministry of Planning and Investment shall guide in detail the contents and method of elaborating plans in international integration of enterprises and submit to the Government the strategy for step-by-step international integration as well as objectives to be achieved each year so that the State bodies and enterprises shall coordinate their implementation.

V. PERFECTING MECHANISM FOR MANAGEMENT OF STATE ENTERPRISES

The ministries and branches shall, within their respective functions, expeditiously implement Decision No.61/1998/QD-TTg of March 16, 1998 of the Prime Minister on the Government's program of action to materialize the resolution of the 4th plenum of the Party Central Committee, 8th congress, so as to create a motive force for developing enterprises and ensuring the control role of the State. They shall early submit to the Government for consideration the immediate supplements and amendments to the Government's Decrees and the Prime Minister's decisions according to the assigned timetable so as to clear in time all hurdles in investment, production and business activities of enterprises. The Ministry of Planning and Investment shall study the draft amendments to the Law on State Enterprises so that the Government shall submit them to the National Assembly in 1998.

The Ministry of Labor, War Invalids and Social Affairs shall early submit to the Government the decree on settling the redundant labour as the result of restructuring the State enterprises.

The Central Steering Committee for Renewal of Enterprises shall assume the prime responsibility and coordinate with the Ministry of Justice, the Government Office and concerned agencies in considering and ensuring the uniformity of relevant documents on renewal of enterprises before submitting them to the Prime Minister.

The ministers, the heads of ministerial-level agencies and agencies attached to the Government, the presidents of the People's Committee of the provinces and cities directly under the Central Government and the managing boards of Corporations 91 shall have to implement this Directive.

For the Prime Minister

Deputy Prime Minister

NGO XUAN LOC

SECTORS NOT YET EARMARKED FOR EQUITIZATION OR WHERE THE STATE NEEDS TO HOLD THE PREVAILING SHARES OR SPECIAL SHARES

(APPLICABLE TO EXISTING ENTERPRISES)

(Issued together with Directive No.20/1998/CT-TTg of April 21, 1998 of the Prime Minister)

1. Existing State enterprises that shall not be equitized yet:

- Public-utility enterprises operating in accordance with provisions in Article 1, Decree No.56-CP of October 2, 1996 of the Government. Particularly for enterprises with the capital level being under 10 billion VND, the agencies that have decided the establishment of such enterprises may consider and decide the application of appropriate forms of reorganization.

- Enterprises manufacturing products or providing services, that the State monopolizes: explosives, toxic chemicals, radioactive elements, printing money and certificates of monetary value, national and international information network.

2. Existing State enterprises where the State needs to hold the prevailing or special shares when they are equitized:

- Public-utility enterprises with the capital level being above 10 billion VND;

- Enterprises engaged in the exploitation of specious and rare minerals;

- Enterprises engaged in oil and gas exploitation;

- Enterprises engaged in the production of fertilizers, insecticides, curative medicines and pharmaceutical chemicals;

- Enterprises engaged in large-scale production of non-ferrous metals and specious and rare metals;

- Enterprises engaged in large-scale electricity production, electricity transmission and supply;

- Enterprises engaged in the repair of flying vehicles;

- Post and telecommunications enterprises (excluding the fields of industry and construction);

- Enterprises engaged in rail and air transport, ocean-shipping;

- Enterprises engaged in printing, publishing, large-scale production of alcohol, beer and cigarette;

- Investment banks, banks for the poor.

Note: The establishment of new joint stock companies shall comply with the Law on Companies.-